Regulating the Mortgage Refinance Sector in Kenya

Regulating the Mortgage Refinance Sector in Kenya


Key among the Government’s agenda for the period between 2018 and 2022 is to provide affordable housing to citizens especially those living within the country’s major cities. Towards this end, the Ministry of National Treasury and Planning launched the Kenya Mortgage Refinance Company (KMRC) to grow the Kenyan mortgage market by providing long-term funding to primary mortgage lenders such as commercial banks, SACCOs, microfinance banks and development finance institutions.

To give effect to the government’s agenda and operationalise the KMRC, the Finance Act 2018 amended the Central Bank Act by empowering the Central Bank of Kenya (“CBK”) to license and regulate mortgage refinance companies in Kenya. The CBK recently gazetted the Central Bank of Kenya (Mortgage Refinance Companies) Regulations, 2019 (“Regulations”) to regulate mortgage refinance companies in Kenya. This article highlights key licensing and regulatory issues to be borne in mind when establishing a mortgage refinance business[1] in Kenya.

Authorised activities of a mortgage refinance company

The Regulations provide that a mortgage refinance company shall only be engaged in activities determined by the CBK including; (a) refinancing or purchasing of eligible mortgage[2] loans; (b) investment in debt securities issues by the Government or any guaranteed debt; (c) providing full secured long term financing to primary mortgage lenders for financing of eligible mortgages; and (d) issuing bonds, notes and other financial instruments for purposes of meeting its objectives.

Although the mortgage refinance eligibility standards are to be set by the individual mortgage refinance companies including the KMRC, commercial banks in Kenya seeking to offload their loans are set to improve their liquidity and in turn reduce hurdles that have for a long time prevented small lenders from issuing mortgages. For instance, following the establishment of the Tanzanian Mortgage Refinancing Company in 2010, the mortgage market in Tanzania has registered an annual increase of 22.04% in mortgage finance market while the number of mortgages increased by 18.76%[3] as reported in its annual report and financial statement for the year ended 31 December 2018.

Please note that under the Regulations, a mortgage refinance company may extend loans to primary mortgage lenders who are in good standing. According to the Regulations, a primary mortgage lender is considered to be in good standing if among other conditions it meets its payment obligations, meets the capital adequacy requirements and complies with regulatory requirements. The Regulations also provide for classifications of loans, renegotiation of loans, recovery of interest from non-performing loans and writing off of loans.


A company seeking to be licensed under the Regulations must among other things be a company incorporated under the Companies Act, 2015, have a core capital of not less than KES 1 Billion and ensure that its significant shareholders, directors and senior officers meet the fit and proper criteria set out in the Second Schedule of the Regulations. In considering an application, the CBK shall consider the financial condition and history of the company, its business strategy, the professional and moral suitability of the persons proposed to manage or control the proposed company, the capital structure and earning prospects and the public interest which shall be served by granting the licence.

If satisfied that the applicant meets the requirements under these Regulations, it may grant a licence to the applicant, within ninety days of the application.

The CBK may revoke or suspend a mortgage refinance company’s licence if the company ceases to carry on mortgage refinance business, goes into liquidation or an order is issued for winding up, contravenes any of the conditions in the licence, a provision in the CBK Act or conducts its business in a manner detrimental to its customers, creditors or members of the public.


A licensed mortgage refinance company shall comply with corporate governance requirements issued by the CBK. The company is also required to be managed by a board with at least an audit, credit and assets and liabilities committees. According to the Regulations, at least two thirds of the board members must be non-executive members.

The Regulations do not prohibit foreign shareholding however, there is a single shareholding limit of 25%, whether directly or indirectly, unless it is a public entity or a multilateral development bank.

Where the mortgage refinance company issues securities to the public, the applicable Capital Markets Authority corporate governance requirements shall also apply.

Prohibited activities

Under the Regulations, a mortgage refinance company shall not:

  1. purchase non-performing loans or mortgages;
  2. engage in wholesale or retail trade, including the import or export trade, except in the course of the satisfaction of debts due to it;
  3. acquire or hold, directly or indirectly, shares and/or beneficial interest exceeding 25% of the core capital of that mortgage refinance company in any financial, commercial, agricultural, industrial or other undertaking;

However, a mortgage refinance company may take an interest in such an undertaking in satisfaction of a debt due to it and such interest shall be disposed of within such time as the CBK may allow.

  1. purchase or acquire or hold any land or any interest or right in land except where such land or interest is reasonably necessary for the purpose of conducting its business, or for housing or providing amenities for its staff. Please note, the total amount of such investment shall not exceed such proportion of its core capital as the CBK may prescribe

If you would like further information or guidance on mortgage refinance companies, please do not hesitate to contact us.

[1] Under the Finance Act 2018, mortgage refinance business refers to the business of providing long term financing to primary mortgage lenders for housing finance and any other activity that the CBK may from time to time prescribe.

[2] Refers to a mortgage that meets the criteria under the eligibility standards as may be set by a mortgage refinance company and approved by the CBK.

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